Quick Answer: Student loans can temporarily decrease credit scores due to increased debt-to-income ratio and hard inquiries, but maintaining on-time payments is crucial for recovery. The person should prioritize IRS debt first since it carries severe penalties, then focus on building payment history across all accounts to improve their credit score over time.
I have been trying hard over the past years to get out debt. I currently owe the IRS , have student loans, and to make it worse I am back in graduate school accumilating more debt. I have also noticed that my credit score has been decreasing and want to know what to do to make this better.
when you take out student loans for school can that decrease your score even though you may pay your other bills on time?
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I was a finance major, and although I’m no expert I’m fairly certain that student loans lower your credit score because you are a more risky bet with all of that debt you have. This would be regardless of paying bills on time.
Your credit score is a compilation of many things (see http://www.myfico.com for details). On time payment is a large factor but your total debt load also affects it. Student loan debt is normally reported and would be a factor.
Your credit score is a reflection of the risk a lender takes when lending you money. A history of late payments is certainly a risk but so is a high debt load. Lenders are likely to be concerned that a person with too much debt might file for bankruptcy. Lenders are less concerned about student loans because they cannot usually be discharged in bankruptcy. Therefore it is likely that you can get student loans even when you can’t get other forms of credit.
Do be careful with private student loans. It is likely that you will pay a higher interest rate with a low credit rating and it can be very difficult to refinance those loans with a low credit rating.
Good Luck!